Audit of Travel and Hospitality

Audit and Evaluation Branch
Industry Canada

August 2008

Recommended for Approval to the Deputy Minister
By the DAC on September 16, 2008
Approved by the Deputy Minister on October 1, 2008

Table of Contents

• 1.0 Executive Summary
  • 1.1 Introduction
  • 1.2 Main Findings
    • 1.2.1 Governance
    • 1.2.2. Control
  • 1.3 Recommendations
    • 1.3.1 Governance
    • 1.3.2 Control
  • 1.4 Statement of Assurance
  • 1.5 Audit Opinion
• 2.0 About the Audit
  • 2.1 Background
  • 2.2 Audit Objectives
  • 2.3 Scope
  • 2.4 Methodology
    • 2.4.1 Audit Approach
    • 2.4.2 Sampling
• 3.0 Findings and Recommendations
  • 3.1 Introduction
  • 3.2 Governance
    • Finding 1: Inconsistent Guidance and Communication
    • Recommendation 1
  • 3.3 Internal Control
    • Finding: Non-Verification of Acquisition Card Hospitality Expenses
    • Recommendation 2
    • Finding 3: Insufficient Pre-Authorization of Travel and Hospitality Expenditures
    • Recommendation 3
    • Finding 4: Insufficient Approval for Payment
    • Recommendation 4.1
    • Recommendation 4.2
  • 3.4 Risk
• Appendix A: Detailed Audit Criteria
• Appendix B: Management Action Plan

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1.0 Executive Summary

1.1 Introduction

Industry Canada travel is governed by the Treasury Board (TB) Travel Directive, which came into effect on October 1, 2002. This Directive provides for fair treatment of employees required to travel on government business together with the reimbursement of reasonable expenses such as transportation, accommodations, meals and incidental expenses.

Hospitality in the federal government is the provision of refreshments, meals, and sometimes entertainment to guests of government departments or agencies. The rules and principles governing Industry Canada hospitality are outlined in the TB Hospitality Policy. This policy is intended to ensure that hospitality is extended in an appropriate, economical and consistent way to facilitate government business or when it is considered desirable as a matter of courtesy.

The audit of Travel and Hospitality was designed to assess the adequacy of the management control framework for travel and hospitality within Industry Canada (IC) and to provide assurance that travel and hospitality expenditures are in compliance with applicable policies and directives. This audit was department-wide and covered the period from April 1, 2006 to September 30, 2007. During this period, IC spent approximately $26.5M (representing approximately 55,000 transactions) on travel expenditures and $1.0M (representing 4,300 transactions) on hospitality expenditures.

Our approach to the audit included an examination of the existing management control framework (MCF) in place to process and monitor travel and hospitality activities within IC and ensure compliance with TB policies. Interviews and transaction testing were conducted across IC from January to March, 2008. The Travel and Hospitality Audit was conducted in accordance with the approved 2007-2008 Audit Plan.

1.2 Main Findings

Through our audit work we found that to a large extent sample claims or transactions selected for testing were in compliance with the TB Travel Directive or Hospitality Policy. We found compliance in the following: accurate use of the TB per diem meal allowance rates and kilometric rates; appropriate justification to support business travel; appropriate justification for hospitality; specific meal-related hospitality expenditures within the per-person maximum threshold; and complete receipts attached to hospitality claim forms.

Four key findings were identified through this audit as follows:

1.2.1 Governance

1. Industry Canada travel and hospitality guidance, tools and communication mechanisms differ across the department resulting in some instances of non-compliance with TB policies and directives.

1.2.2. Control

2. Hospitality expenditures using an acquisition card are not reviewed in keeping with Financial Administration Act (FAA), Section 33.

3. Some travel and hospitality expenditures did not have the proper pre-authorization as required under the FAA, the TB Travel Directive and Hospitality Policy, or were not dated such that we were unable to ascertain if they were properly pre-approved.

4. Some travel and hospitality expenditures were not approved for payment by the appropriate delegated authority, as required under section 34 of the FAA or were not dated.

1.3 Recommendations

1.3.1 Governance

1. The Director General (DG), Financial Operations and Systems (FO&S) should implement and monitor the utilization of standardized department-wide travel and hospitality guidance, tools and communication mechanisms.

1.3.2 Control

2. The DG, FO&S should ensure that hospitality expenditures using an acquisition card are verified per Section 33 of the FAA.

3. The DG, FO&S should ensure that Industry Canada travel and hospitality guidance reflects the policy and legislative requirements for authorization of these transactions, including the necessity to date the related signature and verify that the signatory has the necessary delegation of authority.

4.1. The DG, FO&S should initiate a department-wide review of specimen signature cards to ensure they are kept up-to-date and filed in a manner that supports the ready verification of delegated authorities for travel and hospitality expenditures on an ongoing basis.

4.2. The DG, FO&S should ensure that all travel and hospitality claims are dated and properly approved under section 34.

1.4 Statement of Assurance

In my professional judgment as Chief Audit Executive, sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the opinion provided and contained in this report. The opinion is based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria. The opinion is applicable only to the entities examined and within the scope described herein.

1.5 Audit Opinion

In my opinion, Industry Canada requires improvements to the governance and control processes related to travel and hospitality expenditures.

Richard Willan
A/Chief Audit Executive, Industry Canada

Date

2.0 About the Audit

2.1 Background

Government travel and hospitality is subject to ongoing interest by the public and media. The public is looking for assurance that public money is well spent. This requires greater scrutiny and vigilant oversight over these types of expenditures so as to ensure proper prudence and probity in the management of public funds.

The rules and principles governing travel are identified in the Treasury Board (TB) Travel Directive, which came into effect on October 1, 2002. The Directive provides for fair treatment of employees required to travel on government business and provides for reimbursement of reasonable expenses such as transportation, accommodations, meals and incidental expenses.

Hospitality in the federal government is the provision of refreshments, meals, and sometimes entertainment to guests of government departments or agencies. The rules and principles governing hospitality are identified in the TB Hospitality Policy. This policy is intended to ensure that hospitality is extended in an appropriate, economical and consistent way to facilitate government business or when it is considered desirable as a matter of courtesy.

To provide transparency for travel and hospitality expenditures, departments were asked to disclose travel and hospitality expenses for selected government officials starting in December 2003. This requires the timely posting, on Internet accessible web sites, of travel and hospitality expenditures by Ministers, Parliamentary Secretaries and their exempt staff, and Deputy Ministers and other senior level employees.

The audit was conducted in accordance with the 2007/08 Industry Canada (IC) Audit Plan approved by the Departmental Audit Committee (DAC). The risk-based planning process identified risks associated with travel and hospitality that reflect materially significant expenditures, a complex legislative / policy environment and associated internal controls.

2.2 Audit Objectives

The objectives for this audit were as follows:

• To assess the adequacy of the management control framework for travel and hospitality.
• To provide assurance that travel and hospitality expenditures are in compliance with applicable policies and directives.

These objectives enable us to report on the effectiveness of risk, governance and control practices for travel and hospitality expenditures across Industry Canada.

2.3 Scope

The Travel and Hospitality audit was department-wide and covered transactions for all of the fiscal year 2006-07 and up to the most-recently completed quarter of fiscal year 2007-08 (ending September 30, 2007). During this period, IC spent approximately $26.5M on travel, representing approximately 55,000 transactions and $1.0M on hospitality representing approximately 4,300 transactions.

2.4 Methodology

In support of the requirements under TB's Policy on Internal Audit, audit criteria were developed and linked to each audit objective under the categories of internal controls, governance and risk management. For the details of the audit criteria, see Appendix A to this report.

2.4.1 Audit Approach

Interviews and transaction testing were conducted at selected IC business units, regions and headquarters during the period from January 2008 to March 2008. The following activities were undertaken by the audit team in the performance of this engagement:

• Reviewed the TB Travel Directive and Hospitality Policy;
• Reviewed IC guidance and documentation related to the implementation of the TB requirements for travel and hospitality;
• Conducted planning activities including the identification and documentation of the travel and hospitality management control frameworks including a risk assessment, resulting in an Audit Planning Memorandum, describing the population of travel and hospitality expenditures across the Department and outlining the proposed audit approach, audit criteria, sampling plan and audit program;
• Conducted interviews and inquiries with selected Finance and Administration staff, travelers, hospitality organizers, responsibility centre managers (RCMs) and responsibility centre administrators (RCAs) related to their roles in the travel and hospitality processes;
• Analyzed the monitoring programs in place over travel and hospitality across the Department;
• Undertook detailed transaction testing of travel and hospitality expenditures; and
• Debriefed key stakeholders in the business units, regions and at headquarters on the preliminary results of the audit.

2.4.2 Sampling

Travel

From the population of approximately 55,000 travel transactions, a total sample of 300 travel claims was examined in detail. The sample consisted of 96 randomly selected transactions plus a judgmental sample of 204 transactions selected to ensure that high risk travel transactions^{Footnote 1} were represented in our testing.

Hospitality

From the population of approximately 4,300 transactions, a total sample of 173 hospitality expenditures was examined in detail. The sample consisted of 94 randomly selected transactions together with a judgmental sample of 79 transactions selected to ensure effective coverage of hospitality expenditures in our testing.

3.0 Findings and Recommendations

3.1 Introduction

The following sections present the detailed findings from the department-wide audit of Travel and Hospitality. Findings are based on the evidence and analysis from the detailed audit conduct performed. In addition to the findings presented below, observations and conditions that were non-systematic and of low materiality and risk have been communicated to management for their consideration.

3.2 Governance

Finding 1: Inconsistent Guidance and Communication

Formal travel and hospitality guides and tools, including claim forms and templates, vary across Industry Canada. Without sufficient, consistent corporate guidance in place, sectors and regions have developed their own tools and infrastructure to support their needs; often without the engagement or approval of the Comptrollership and Administration Sector (CAS). As a result, there area a suite of differing processes and procedures for these expenditures which could impact Industry Canada's compliance with TB policies and directives.

The differing guidance has resulted in staff not staying in a hotel prescribed by the Public Works and Government Services Canada (PWGSC) Accommodation Listing as mandated through the TB Travel Directive. This is evidenced by the 61 (20%) travelers whose claims were tested not utilizing this required listing. We also found that there is not consistent guidance as to whether or not attendees at events should be signing the Section 34 approval for the associated hospitality payments at these events.

Recommendation 1:

The Director General (DG), Financial Operations and Systems (FO&S) should implement and monitor the utilization of standardized department-wide travel and hospitality guidance, tools and communication mechanisms.

3.3 Internal Control

Finding 2: Non-Verification of Acquisition Card Hospitality Expenses

The primary responsibility for verifying individual accounts, including travel and hospitality expenditures, rests with IC Responsibility Centre Managers (RCMs) who have the authority to confirm and certify entitlement under Section 34 of the FAA. With respect to both travel and hospitality expenses, a detailed review is typically completed on specific elements of each claim as part of the release and approval process undertaken by the FAA Section 33 delegated authority.

We found (as did a recent IC internal audit of acquisition cards) that the expected 100% Section 33 verification for hospitality expenditures paid for using an acquisition card does not occur. This lack of ongoing FMMD verification resulted in instances of incomplete or missing back up documentation for these expenditures.

Recommendation 2:

The DG, FO&S should ensure that hospitality expenditures using an acquisition card are verified per Section 33 of the FAA.

Finding 3: Insufficient Pre-Authorization of Travel and Hospitality Expenditures

Travel

All government business travel must be authorized in advance, in writing, to ensure that all travel arrangements are in compliance with the provisions of the TB Travel Directive. Based on the results of our testing of transactions, it was noted that specific travel claims tested did not provide sufficient evidence of appropriate pre-authorization, as follows:

• 17 out of the 187 (9%) travel claims for which a pre-approval travel form or alternative format was used to demonstrate pre-approval, did not demonstrate evidence of FAA Section 32 pre-approval.^{Footnote 2}
• 10 out of the remaining 170 (6%) travel claims tested for which pre-approval was evident, no corresponding date was recorded to confirm that the approval had taken place in advance of the travel.
• Of the pre-approvals with evidence of a corresponding date, 15 out of 160 (9%) of the approvals were dated after the date of the travel. Consistent with the claims with no evidence of pre-approval, those dated after the travel date demonstrates that no pre-approval was obtained for these transactions.

The results as outlined above were disbursed across the regions and sectors tested throughout the Department. However, it should be noted that specific entities tested were identified with minimal exceptions in this area.

Failing to properly pre-authorize travel is a violation of the FAA and the TB Travel Directive and may result in IC incurring inappropriate travel expenditures. Although there was no single cause identified for these instances of insufficient pre-authorization, it is primarily attributed to the varying expectations created through the use of different guidance by the regions, sectors and entities in the pre-approval of travel expenditures.

Hospitality

The TB Hospitality Policy requires departments to authorize and determine when hospitality is necessary and to ensure that all such hospitality expenditures are consistent with the provisions of the Policy. Hospitality, therefore, must be authorized in advance, in writing, to ensure that all hospitality arrangements are in compliance with the provisions of the HospitalityPolicy.

Based on the results of sample testing of transactions, it was noted that specific hospitality expenditures tested did not provide sufficient evidence of appropriate pre-authorization, as follows:

• 9 out of 173 (5%) hospitality claims did not demonstrate evidence of FAA Section 32 pre-approval, either through a pre-approval form, blanket hospitality authority or an approved hospitality plan.
• Of the remaining 164 claims tested for which pre-approval was demonstrated, 11 (7%) of the approvals had no corresponding date recorded to confirm that the pre-approval had taken place in advance of the event.
• Of the 153 pre-approvals with associated dates recorded, 8 (5%) of the approvals were dated after the date of the event. Consistent with the claims with no evidence of pre-approval, those dated after the event demonstrates that no pre-approval was obtained for these transactions.
• Of the 164 claims tested for which evidence of pre-approval was on file, 8 (5%) of the pre-approvals were made by an individual who did not demonstrate evidence of delegated authority over the applicable fund centre for that time period — as verified by the individual delegated authority's current specimen signature card. It was noted in some entities that the specimen signature cards were outdated, potentially resulting in inaccurate formal records of delegated authorities.

These results were disbursed across the regions and sectors tested within the Department and it should be noted that specific entities tested were identified with minimal exceptions in this area. While there was no single cause identified for instances of insufficient pre-authorization; it may be attributed to the use of hospitality guidance that differs between the regions, sectors and entities (see Finding 1 above).

Recommendation 3:

The DG, FO&S should ensure that Industry Canada travel and hospitality guidance reflects the policy and legislative requirements for authorization of these transactions, including the necessity to date the related signature and verify that the signatory has the necessary delegation of authority.

Finding 4: Insufficient Approval for Payment

The Financial Administration Act (FAA) requires an expenditure management process which includes account verification. Responsibility for this process and the approval of the expenditure ultimately rests with those officers who are formally delegated authority pursuant to Section 34 of the FAA.

Travel

Based on the results of sample testing of transactions, it was noted that specific travel claims tested did not have sufficient evidence of appropriate approval for payment, as follows:

• Five (5) out of the 300 (2%) transactions were missing evidence of FAA Section 34 authorization on the claim form.
• 34 (12%) of the remaining 295 travel claims with evidence of FAA Section 34 authorization, did not have a corresponding date to confirm that the individual had been delegated authority for the specified time period; and
• 12 (5%) out of the remaining 261 travel claims tested were authorized by an individual who did not have evidence of delegated authority over the fund centre during that time period.

These results were disbursed across the regions and sectors tested within the Department, however, it should be noted that specific entities tested were identified with minimal exceptions in this area.

Failing to properly authorize travel expenditures for payment is a violation of the FAA and can result in the improper payments or reimbursement for departmental travel. Although there was no single cause identified for the results, it appears primarily attributed to the lack of consistent and clear guidance and forms to date and verify the proper authorization of travel expenditures.

Hospitality

Based on the results of sample testing of transactions, it was noted that specific hospitality expenditures tested did not provide sufficient evidence of appropriate authorization, as follows:

• 46 (27%) out of the 173 hospitality expenditures tested, did not have a documented date corresponding to the FAA Section 34 approval to confirm that the individual had been delegated authority for the specified time period.
• For 12 (7%) out of the 173 hospitality transactions tested, the individual who approved the transaction (FAA Section 34) did not have evidence of delegated authority over the fund centre during that time period.

These results were disbursed across the regions and sectors tested, however, it should be noted that specific entities tested were identified with minimal exceptions in this area.

As demonstrated from the above-noted findings, FAA Section 34 delegated authorities are not consistently including dates with the evidence of their authorization and in some cases the templates being used to approve hospitality expenditures do not have a space to date the signature. As a result, the department is unable to ensure that hospitality expenditures are being properly authorized for payment as required by the FAA. This is primarily as a result of the use of differing expectations created by utilizing varying guidance and templates across the regions and sectors, for the payment of hospitality expenditures.

Recommendation 4.1

The DG, FO&S should initiate a department-wide review of specimen signature cards to ensure they are kept up-to-date and filed in a manner that supports the ready verification of delegated authorities for travel and hospitality expenditures on an ongoing basis.

Recommendation 4.2

The DG, FO&S should ensure that all travel and hospitality claims are dated and properly approved under section 34.

3.4 Risk

Overall, the combination of processes, procedures and guidelines in place provides adequate risk management. No major issues related to risk management were raised during the audit.

Appendix A: Detailed Audit Criteria

Audit Objective

To assess the adequacy of the management control framework for travel and hospitality and to provide assurance that travel and hospitality expenditures are in compliance with applicable policies and directives.

Audit Objective — Part 1

To assess the adequacy of the management control framework for travel and hospitality.

Audit Criteria:

A) Industry Canada travel and hospitality policies are clear and consistent with the TB policy and directives. (internal control)

B) Roles and responsibilities, including the Industry Canada authority framework for travel and hospitality, are clearly and adequately defined. (governance, internal control)

C)Communications and training for travel and hospitality are clear, consistent and sufficient to ensure that all stakeholders are fully aware of their responsibilities. (governance, internal control)

D) Monitoring practices and controls are adequate to ensure compliance with travel and hospitality policies/directives. Risks are identified, assessed and managed. (governance, risk management, internal control)

E) The travel and hospitality data processing systems are used to meet management and organization information needs — including proactive disclosure requirements. (governance, internal control)

Audit Objective — Part 2

To provide assurance that travel and hospitality expenditures are in compliance with applicable policies and directives.

Audit Criteria:

F) Travel and hospitality expenses are pre-authorized to ensure these expenditures are incurred in accordance with the provisions of the TB and departmental policies. (risk management, internal control)

G) Travel and hospitality claims have the requisite level of detail for certification of expenses by managers under the FAA Section 34 and for account verification under the FAA Section 33 by finance personnel.(risk management, internal control)

H) Expenditures incurred for travel and hospitality are in compliance with the TB Travel Directive/Special Travel Authority and Hospitality Policy, Industry Canada policies and represent value to the Crown. (internal control)

I) All travel and hospitality expenses for selected departmental officials, including deputy ministers and senior public servants are published on the departmental web site. (internal control)

Appendix B: Management Action Plan

Footnotes

1. ¹ High risk travel transactions are defined by the department as those greater than $2,000. (back to footnote reference 1)
2. ² 99 travel claims were covered by a blanket travel authority with no major issues noted and the remaining 14 travel claims were subject to the TB Special Travel Authority and were exempt from the pre-authorization requirement. (back to footnote reference 2)